EO on franchising to promote entrepreneurship and protect MSMEs

The issuance by President Duterte of Executive Order No. 169 “Strengthening the Franchising Industry for the Protection of Micro, Small and Medium Enterprises (MSMEs)” will project these industries.

Department of Trade and Industry (DTI) Secretary Ramon M. Lopez ensured that in promoting entrepreneurship and franchising as tried and tested business models for aspiring MSMEs, “we have to protect these MSME investors from opportunists and scams that take advantage of small entrepreneurs. These destroy the image of the franchise industry.

The EO has outlined the prescribed minimum terms and conditions for franchise agreements.

Signed on May 12, 2022, the EO aims to strengthen the franchising industry to help businesses, especially MSMEs, by developing a transparent and business-friendly environment, and promoting fair and equitable practices.

The DTI, as the agency mandated to develop and implement policies on regulation of trade, industry, and investments, specified the following terms and conditions for franchise agreements:

1. Name and description of the products or services under the franchise;
2. Specific rights granted to the MSME franchisee, such as but not limited to, the right to use the mark or any other intellectual property rights duly registered with the Intellectual Property Office of the Philippines (IPOPHL);
3. Full disclosure of any pre-signing, initial or recurring fees, such as but not limited to, franchise fee, promotion fee, royalty fee or any related type of fee which may be imposed on the MSME franchisee;
4. Detailed responsibilities of the franchisor, which include the enumeration of the types and particulars of assistance and the submission of the franchise agreement to the DTI;
5. Detailed responsibilities of the MSME franchisee;
6. Non-discriminatory provisions;
7. Duration of the franchise, and the terms and conditions for renewal;
8. Effects of and grounds for pre-termination, termination or expiration of the franchise agreement;
9. Provision on “cooling off” period, where the MSME is given the option to terminate the agreement;
10. Mechanism for dispute resolution, which shall include a stipulation that parties may seek voluntary mediation under Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004; and
11. Remedies of the parties in case of any violation of the terms and conditions of the franchise agreement.

The Department clarifies that franchisors may refer to the aforementioned minimum terms and conditions as best practices that can be incorporated into their respective franchise agreements for non-MSMEs franchisees.

The DTI is likewise in charge of creating an MSME Registry of Franchise Agreements.  According to the EO, the DTI will prepare the implementing rules and regulations for the execution of the said order within 90 days.

“As we enforce consumer protection, we also recognize the need to strengthen the promotion of fair and transparent franchise practices for the benefit and growth of our MSMEs”, Sec. Lopez underscores.

For consumers, DTI Consumer Protection Group Undersecretary Ruth B. Castelo specifies “strong franchisees and ethical franchisors will help promote consumer confidence.”

EO 169 is available for download from the Official Gazette.

For consumer-related concerns and queries, you may send an email to ConsumerCare@dti.gov.ph or reach us thru the One-DTI (1-384) Hotline.